Alternatives To Refinancing Your Heloc
If none of the traditional refinancing choices work for you, there are other ways to pay off your HELOC, but they might not be as beneficial.
For example, you could apply for a personal loan which is likely to have a fixed, but higher, interest rate and use that money to pay off your HELOC.
Alternatively, you could keep your HELOC as is, but adjust other parts of your budget to free up more money for the repayment of your HELOC.
When Does A Home Equity Loan Make Sense
While the pandemic created unique challenges in nearly every sector of the economy, the US housing market surprised everyone by holding strong, and that pattern has continued into 2021.
Recent data from the National Association of Realtors shows that, from June 2020 to June 2021, the median price for single-family existing homes saw a near-record year-over-year increase of 22.9%. And interest rates for many financial products continue teetering near record lows.
This has left many consumers wondering if nows the best time to access the equity thats built up in their homes over the last few years. If you have a lot of cash trapped in your home, its smart to learn more about home equity products, how they work and how you can use them to reach specific financial goals. Lets take a deeper look at home equity loans and why now may be a great time to consider one.
How To Get A Home Equity Loan To Buy Another House
If youre interested in using home equity to purchase a new home, the value of your house will need to be high enough to support the loan, and youll have to meet your lenders requirements. Heres how to get a second mortgage to buy another house.
1. Determine the amount you want to borrow. Before taking equity out of your home to buy another house, decide how much you want and need. Home equity loans limit how much you can borrow. In most cases, you can only access up to 85% of the equity in your home. For example, if your home is worth $350,000 and you owe $250,000, you have $100,000 in equity. In this example, the maximum you would be able to borrow is $85,000.
2. Prepare for the application process. Your approval for a home equity loan will depend on multiple factors. The value in your home will determine the maximum amount of equity available, and your financial information will determine how much of that equity you can borrow. In addition, your lender will look at your credit score, income, other outstanding debts and additional information.
4. Apply to the loan with the best terms. Once you’ve determined the loan with the best terms, youre ready to apply. Youll submit the application and provide the requested information. Your lender will order an appraisal of the home or determine the value using another method.
Also Check: How To Get An Aer Loan
What Can A Heloc Help You Do
In life, you often face major home improvement projects,
unexpected costs, education expenses, or the need to consolidate debt.
A home equity line of credit, or HELOC,
could help you achieve your life priorities.
At Bank of America,
we want to help you understand
how you might put a HELOC to work for you.
A HELOC is a line of credit borrowed against
the available equity of your home.
Your home’s equity is the difference between
the appraised value of your home
and your current mortgage balance.
Through Bank of America,
you can generally borrow up to 85%
of the value of your home
MINUS the amount you still owe.
say your homes appraised value is $200,000.
85% of that is $170,000.
If you still owe $120,000 on your mortgage,
youll subtract that, leaving you with the maximum
home equity line of credit
you could receive as $50,000.
Much like a credit card,
a HELOC is a revolving credit line that you pay down,
and you only pay interest on the portion of the line you use.
With a Bank of America HELOC,
there are no closing costs,
no application fees, no annual fees,
and no fees to use the funds!
Plus, Bank of America offers rate discounts
when you sign up for automatic payments,
as well as discounts
based on the funds you initially use when opening the HELOC.
AND there’s Preferred Rewards,
which extends benefits to you
as your qualifying Bank of America balances grow.
The interest rate is often lower
than other forms of credit,
but you should consult a tax advisor.
If Only Your Spouse Is On The Mortgage Can You Be Added Later
If only your spouses name is on the mortgage, you may be able to add your own name to the mortgage. To do so, you would need to contact your lender to make the request. Your lender will either decline to add your name, due perhaps to credit concerns, or agree to add your name by means of a simple mortgage modification.
The other method of adding your name to an existing mortgage is through a refinance. A refinance is where you get an entirely new loan for your home, and you would apply for the loan as a couple.
Recommended Reading: How To Get An Aer Loan
Can You Refinance A Home Equity Loan
As alluded above, taking on a home equity loan or HELOC can mean taking on additional risks, as it means making yourself responsible for a second mortgage of sorts and associated payments. All things considered though, its not uncommon to want to refinance a home equity loan which is indeed possible if you find that the opportunity presents itself to secure a better interest rate or more favorable payment terms. In fact, doing so can often help you stay more cash positive, and better able to meet monthly payment obligations.
Sample reasons that you might wish to refinance a home equity loan include:
- Ability to secure a lower interest rate on your home equity loan or HELOC due to declining real estate market interest rates.
- Desire to switch from an adjustable-rate loan to a fixed interest-rate loan instead .
- Need for a larger home equity loan or HELOC to provide greater financial liquidity or take more cash out of your home.
- Want to secure a longer repayment term and/or lowered monthly payment obligations.
- Chance to remove or avoid a balloon payment.
In other words, if you possess a home equity loan, you may be given the opportunity to capitalize on falling interest rates during its term at which time it may be a fine idea to refinance. Alternately, you may wish to refinance your home equity loan as a means by which to obtain a larger loan, or transition from an adjustable-rate loan product to a fixed-rate loan solution.
Great news! Rates are still low in 2021.
The Bottom Line: Is A Heloc Right For You
If youre in need of a large sum of cash on a revolving basis to keep up with your home improvement needs, a HELOC could be a good choice for you. Consider all the pros and cons first, as taking on a line of credit against your homes equity is a financially significant, and potentially risky, move.
If you want to learn more about tapping into your homes equity without taking out a second mortgage, talk to a Home Loan Expert who can help you understand the home equity and refinancing options that are available to you.
Get approved to refinance.
You May Like: How Does Paypal Business Loan Work
When Is It Smart To Refinance Your Car Loan
Times when you should consider refinancing your car include various situations. Consider the following:
Consider Your Credit score
Has your gone up significantly in the recent past? If you find that your rating is drastically higher than when you initially took out your car loan, you will likely get a better rate if you refinance.
Can You Get a Lower Interest Rate?
Did you get your vehicle when interest rates were really high? It happens to countless households across the country. Many chose to refinance their vehicle when interest rates lower.
Where Do You Stand Financially?
If you have recently come across difficult times situations like unexpected expenses or even a decrease in income, you could find yourself unable to make regular payments. Instead of having a poor payment history on your credit, refinancing can make things more affordable.
On the other hand, if you have gotten a pay increase which you can substantiate with pay stubs, it can be wise to look into refinancing, too. This means that your income-to-debt ratio has improved and you will better qualify for a loan arrangement.
Refinancing Your First And Second Mortgage Together
- If you used a second mortgage or home equity line of credit to buy your home, we can typically lend you up to 95 percent of your homes value.
- If you used your second mortgage for anything other than buying your home, then the most we can lend you when refinancing your mortgages is 80 percent of the current home value.
- to get started with a free Refinance Check-Up.
We can help you get started by assessing your current financial position to determine if and when combining your first and second mortgage is the best choice for your refinancing needs. For more information on refinancing, check out some of the other options we provide at Accunet Mortgage.
Read Also: Rv Loan With 670 Credit Score
How Does The End Of The Refinance Fee Affect This Consolidation Strategy
Its huge, Cohn said. You got the gold ring on top of it. Not only have bond yields dropped, but so has the cost of borrowing because we got rid of that fee.
The refinance fee of 0.5 percent of the loans balance was levied on most mortgage overhauls since the start of the COVID-19 pandemic. It applied to conforming loans held by Fannie Mae and Freddie Mac, with a principal balance of at least $125,000.
The end of the fee on Aug. 1 will make it easier for borrowers to consolidate their debt, especially if doing so would have put them on the wrong side of that $125,000 threshold. The fee was paid by lenders, and many of them chose to pass just some of the cost on to borrowers, so its not clear if anyone will see the full half-point in savings when they refi.
What Is Heloc Payment Shock
What happens with some HELOC borrowers is that they max out their credit lines during the drawing period and just make the minimum payment. But when the drawing period ends, the entire balance must be repaid over the remaining term of the loan.
If you have a 15-year HELOC, your drawing period might be five years, and then you have ten years to pay off the entire balance. If you have a 25-year HELOC, your drawing period might be ten years, and once that ends, you get 15 years to repay the balance.
Making things worse, HELOCs almost always come with variable rates. And lately, interest rates have been heading higher.
Change Your Term Or Get A Different Mortgage
Sometimes your needs change and you may have to pay off your mortgage faster or switch your mortgage type. If you get a bonus at work and want to put it towards your mortgage, consider refinancing into a term with more prepayment privileges, such as an open mortgage. Or, if interest rates have dropped, and you plan to stay in your home for the long haul, you can refinance to a fixed-rate mortgageOpens a popup. to lock in the lower rates.
How Do You Pay Back A Home Equity Line Of Credit
A HELOC has two phases: the draw period and the repayment period.
During the draw period, you can borrow from the credit line by check, transfer or a credit card linked to the account. Monthly minimum payments often are interest-only during the draw period, but you can pay principal if you wish. The length of the draw period varies its often 10 years.
During the repayment period, you can no longer borrow against the credit line. Instead, you pay it back in monthly installments that include principal and interest. With the addition of principal, the monthly payments can rise sharply compared with the draw period. The length of the repayment period varies its often 20 years.
At the end of the loan, you could owe a large lump sum or balloon payment that covers any principal not paid during the life of the loan. Before you close on a HELOC, consider negotiating a term extension or refinance option so that you’re covered if you can’t afford the lump sum payment.
Recommended Reading: Becu Auto Smart
Getting A New Heloc Or Heloan
Getting a new HELOC, if your finances make it possible, would reset your entire mortgage loan to the draw period. That gives you an entirely new term to repay the loan.
However, youll probably have a variable interest rate, which can make budgeting a challenge. As the Fed raises interest rates, the bank raises your HELOC rate.
A new HELOAN almost always carries a fixed interest rate. However, the fixed rate is higher than the variable rate of a HELOC, and your closing costs will probably be higher.
If Only Your Spouse Is On The Title How Can You Be Added
If you are not on the title and would like to be, its a simple process to be added. The title holder would execute a new deed to transfer his or her interest in the property to both him/herself and to you. An attorney would prepare the deed and necessary transfer tax forms for a cost of approximately $750, plus another $400 or so for filing the deed and for the real property transfer taxes filing.
Don’t Miss: What Credit Score Does Usaa Use For Auto Loans
Option : Refinance Your Heloc
A) Refinance into a new HELOC
You may be eligible to refinance your home equity line of credit into a new HELOC which means you would be transferring your current HELOC balance into a new home equity line of credit with new terms and conditions.
The basics of refinancing a home equity line of credit
Since you will be opening a new HELOC with Chase to pay off the balance of your current account, you can think of the refinancing process as a re-application.
Important: All home lending products are subject to credit and property approval. Rates, program terms and conditions are subject to change without notice. Not all products are available in all states or for all amounts. Other restrictions and limitations apply.
- You will have access to your new HELOCs available credit as long as the balance you are refinancing doesnt exceed your credit line limit.
- You dont have to wait until you are ready to refinance your HELOC to begin preparing. You can start by keeping a copy of your credit report, keeping your debt low, and keeping all of your accounts in good standing.
- You can get started by reviewing your credit score with our new .
B) Refinance your HELOC into a new First Mortgage with Chase
We want to make sure you do what is best for you. Call us to talk about refinancing your HELOC and existing mortgage into a new first mortgage with Chase.
Unlike refinancing into a new HELOC, choosing a new first mortgage would no longer provide access to revolving credit.
What’s The Difference Between A Heloc And A Home Improvement Loan
The biggest difference between a HELOC and a home improvement loan is that a HELOC borrows against the existing equity in your home, while the latter does not. Because of this, home improvement loans have a lower limit that you can borrow. These loans can also carry higher interest rates than HELOCs.
The money from HELOCs also doesnt have to be used for home improvement. It can be used in other ways, from debt consolidation to making major purchases.
Don’t Miss: Can You Buy A Mobile Home With A Va Loan
Should You Use Your Home Equity To Invest In The Stock Market
If you are more than halfway through repaying your home mortgage you likely have a decent amount of equity in the house. With refinancing and borrowing against your mortgage rates well below 5%, doesnt it make sense to take equity out of your house and put it into the stock market? You could double your money if you borrowed at 5% and earned 10% in investment growth afterall, the stock market has been returning about 10% on average for the past 50 years. It is even more tempting when the market takes the occasional dips only to rebound a few weeks or months later. You could time it to buy on the dips and cash in even more. The odd seems to be in your favor, but is it smart to use your home equity for investment purposes?
Photo by nikcname via Flickr
Things To Watch Out For When Refinancing A Car Loan
Just like with any financial arrangement, it is important to keep your eyes out for red flags. Ensure that the lending agency is reputable and offers a reasonable interest rate. Make sure that you are dealing with a proven institution and be sure to read all the fine print. If you are unsure as to the meaning of a phrase, it is better to ask.
Take a look at the cost of refinancing the vehicle. Are there any upfront expenses? Are you going to be paying more down the line? If so, how much more? Make sure that you have all of the information above before making your decision. As always, avoid deals that seem too good to be true. Understand your rights and the responsibilities of the lender. Be certain that you are comfortable with the arrangement and that it is in your best financial interests.
Read Also: Va Loan Requirements For Mobile Homes